I'm not so sure most people know what they're signing up for when opening a bank account. I also don't think banks particularly hide it, but I'd be surprised if the average person realizes that their checking and savings accounts are only IOUs or that money lent out for a mortgage likely didn't exist until they signed closing documents.
That are guaranteed by the US Government up to $250,000. While the average person may not know the details, the average person’s faith in the banking system is well founded. That’s why these “alt-banks”, which avoid FDIC or NCUA coverages, are so problematic.
For all practical purposes for a customer who doesn't do more than putting money in, it's just a storage and they know how much of it is protected if something happens to the bank. From their point of view their money is there, even if the implementation details are much more complicated.
But the money literally isn't there, and the FDIC insurance that secures up to a limit is itself poorly funded and incapable of covering the failure of a moderately sized bank.
Saying the money appears to be there is very different from the reality of it, and in the context of whether customers consent to how the system works its also feels disingenuous IMO.
Can people spend the money as though it were there? Sure. Is the money they deposited there or are they aware that 90-100% of the money was immediately allocated to something else? Almost certainly no.
Who cares, the customers aren't exposed to all that and that's why they don't know it. It's like saying that McDonald's doesn't have any hamburgers, it's all buns and meat and lettuce. Yeah, that's how it works.
Last year a few banks went tits up, all the deposits were paid.
In my opinion a more apt analogy would be McDonalds selling low quality food that includes ingredients known to very likely ve bad for your health without ever making that clear. Sure a customer could technically dig into research and health studies but that's not really the point here.
Is it consent if you aren't made aware or given reasonable access to information that the average person could be expected to understand?
> FDIC insurance that secures up to a limit is itself poorly funded and incapable of covering the failure of a moderately sized bank
Can you clarify what you mean by "covering the failure of a moderately sized bank"? Bank is almost never "all the money is missing". Instead, it's usually something like "we have assets > deposits, but they're long term assets that can't be liquidated immediately so we can't pay all the depositors right this second", or "we have assets < deposits, but the gap isn't big enough that FDIC can't handle it".
The FDIC insurance fund has been below its target reserve rate for years now and continues to be underfunded.
At the end of 2022 the fund had $128.2 billion. I can't find a solid number on domestic deposits that are covered by FDIC based on the maximum deposit amount, but their Q2 2023 report showed $17.2 trillion in total domestic deposits across all FDIC institutions.
I'd expect that more than 0.7% of all deposits are under the $250k deposit limit. Let's just say 30% is actually covered, SVB had 89% of deposits above the limit when it failed, the insurance fund couldn't cover the failure of a bank with more than 3% of the market share of deposits.
The caveat there is that bank assets can be liquidated, but if the failure is fast enough that becomes really hairy. I haven't yet seen clear details on what strings they pulled and what sweetheart deals they gave when SVB was sold at the last minute, but that really means the fund isn't funded to cover enough and the hope really lies in market manipulation and a forced sale (likely funded in part by tax payers).
